General Instructions: Download the Excel file provided. Your responsibility is to do the following.

1. Use 2019 actual data to complete the 2019 Actual column incorporated with the budget and variance analysis tab.

2. Complete the 2020 Flexible Budget column incorporated with the budget and variance analysis tab. The flexible budget includes several changes to the data. The changes are listed in the Excel file / Instructions Tab.

3. Compute variances.

4. Explain the variances.

5. Compute the break-even in units and dollars.  

6. Compute the margin of safety.

The format used is a variable costing income statement.

Excel: In order to minimize errors, improve accuracy, and increase efficiency use formulas in all cells. If you need assistance with Excel review the week one questions thread. Included therein are three options to help you advance your Excel skills. Two links at the bottom are titled “Formula Overview” and “Excel – Basic Math”. The third option is Excel Essential Training (week one learning activities). The tutorials will help you with, in part, formulas and spreadsheet format.  

Video: In order to gain experience and insight please review the following video. It is a simple presentation and will help everyone develop a basic understanding of flexible budgets. The video was created by a third party. There are additional videos included with the Bing search as well. 

Flexible Budget Example

Flexible Budget Guidance: For additional information regarding flexible budgets please review the following.

What is a flexible budget?

Based on the example, fixed expenses do not change with volume. Contrary, variable expenses change with volume. With respect to the case study, the same principles apply. The only difference is that our variable expenses will change based on sales volume instead of machine-hours.

Example:

Sales Volume 2,640

Feed cost per animal 3.13

Total feed cost = 2,640*3.13=8,263

Advertisement, Bedding and Specialty Food Expense: Advertisement is a fixed expense at the 2,640 volume level (column F). As a result, column F, row 19 is equal to -0-. However, the expense is considered a mixed cost (fixed and variable) with the flexible budget (column H). Bedding and specialty food does not apply to the prior year income statement (column F). As a result, column F rows 20 and 21 is equal to -0-. For further clarification, my suggestion is to read the instructions tab.

Variance and Variance Explanation: A variance is the difference between two numbers. From a budget perspective, we compare actual business results to our budget. Material deviations are analyzed to help us plan, in part, cash flow, revenue projections, expense levels, and to make informed business decisions.

 

Calculate the variance for all items listed on the spreadsheet (i.e. sales, all variable and fixed expenses, contribution margin, net income, and the break-even computation).

Column J: Enter the difference between actual results and the budget.

Column L: Explain the difference.

Instructions

2019 Actual

Data 2019
Actual
Average animal fee 38.75 Annual unit sales 2,640 Variable cost per animal Rewards 0.05 Feed 3.13 Veterinary Fees 3.52 Labor 1.45 Supplies 1.55 Contractors 0.65 Fixed Costs Lease 250 Depreciation 770 Interest & Penalties 235 Insurance 4,885 Rent 4,690 Advertisement 5,025 Repairs & Maintenance 3,460 Entertainment 4,075 SG&A 2,150 Utilities 3,250 Taxes 6,660 Instructions: Use Excel formulas in all applicable cells. 2019 Actual

1. Compute results using the prior year actual accounting data listed above. Enter the information in the

Budget

and

Variance

Analysis

tab, column F.

2. Use the skills you learned from the week five project. Compute the break even point in units and dollars. Compute the margin of safety. Enter the information in the Budget and Variance Analysis tab, rows 46-52. 2020 Flexible

Budget 1a. Prepare a flexible budget using estimated annual unit sales = 2,900. Enter volume in the Budget and Variance Analysis tab, column H, row 4. Enter all other data and calculations in the appropriate cells (column H). 1b. Increase the average animal fee by 3.25%. 1c. Increase the variable cost per unit (animal) by 2.75%. This applies to all variable cost categories (excluding advertising, bedding, and specialty food). 1d. The driver for bedding and specialty food is the number of non-traditional animals. The company expect 250 animals per year at an average cost of $1.15 per animal for bedding and $1.32 per animal for specialty food. 1e. The company plans to relocate the business. This may decrease rent by $700. 1f. The company uses a dated advertising program including the yellow pages and billboard signs. The company plans to reduce costs and increase effectiveness by investing in an online campaign. The cost structure changes to a mixed cost and includes $800 fixed plus variable costs. The variable cost is equal to .01 per online view plus $2.75 for appointments scheduled online. The company expects 1,400 views and 225 scheduled appointments. 2. Use the skills you learned from the week five project. Compute the break even point in units and dollars. Compute the margin of safety. Enter the information in the Budget and Variance Analysis tab, rows 46-52. 3. Use formulas to compute variances and explain why the variances are positive or negative. Enter formulas in the Budget and Variance Analysis tab column J. Write your explanations in column L.

Budget and Variance Analysis

Volume (units)

2020
2019 Flexible
Actual Budget Variance

Sales
Rewards
Feed
Veterinary Fees
Labor
Supplies
Contractors
Advertisement
Lease
Depreciation
Interest & Penalties
Insurance
Rent

Advertisement

Repairs & Maintenance
Entertainment
SG&A
Utilities
Taxes

2020 Annual Budget and Variance Analysis
Annual	Sales	Enter sales volume in colums F and H, row 4.
Variance Explanation
Less: Variable Expenses
Bedding
Specialty Food
Total Variable Expenses
Contribution Margin
Less: Fixed Expense
Total Fixed Expense
Net Income (Loss)
Break Even (Units)
Break Even (Dollars)
Margin of Safety (Dollars)